Evolving a luxury floor coverings brand from trade-only business to include retail Chad Stark [ VP, Operations and Technology ] Luxury Retail Summit: Holiday Focus 2013
Company Overview Founded in 1938 by Arthur Stark Sell high-end carpets, rugs, fabrics, wall coverings, and furniture Trade-only Decorative Supply House Expanding to include retail NYC based with ~550 Employees and 30+ showrooms Ownership in largest producer of woven carpet globally Operate the largest custom fabrication warehouse in industry Manufacturing partnerships with firms in 15+ countries Wholesale division that distributes products to ~1000 retail stores in USA Primarily residential business but also service contract + hospitality markets Only company with exclusive carpet designs stocked in inventory 2
Mission Statement Stark is dedicated to supplying beautiful and unique carpets, rugs, fabrics, and furnishings of unparalleled quality to the interior design community with exceptional custom services and account management. We are committed to continuing our tradition of excellence in product development by exploring world markets to ensure we will always offer the best new products and innovative ideas. 3
Brand Heritage Arthur Stark: Wall Street Delivering Best Quality Carpet to clients Stark has a history of innovation Transition from Narrow Looms to Broad Looms 2 nd generation brings décor to the Floor Furnished Whitehouse 2 showrooms 30+ Expanded products 3 rd generation Taking over now Evolving company in-line with evolving industry 4
Interior Designers Role in Luxury Flooring Industry Interior Designers responsible for growth + success of luxury flooring I. Efficiently organize interiors beautifully, functionally, and uniquely II. III. Understand value of luxury carpets and rugs Can translate this value to uneducated retail consumers 5
Trade-only Showrooms and Design Centers 1940s = Trade-only showrooms (Stark) and design centers (DDB) Purpose: satisfy needs of Interior Designers To purchase, retail clients needs to be be accompanied by professionals Interior Design Centers: malls for interior designers of high-end showrooms 20+ design centers in US Stark has been anchor tenant in most Industry Changes business model changing Impacts how showrooms work with designers 6
How Trade Showrooms work with Interior Designers Showrooms considered wholesale Sell products to designers sell to retail consumers Difficulties in Selling direct-to-retail Would upset trade partners by stealing their customers Value of Interior Designer > Value of Retail Customer Repeat vs 1 time purchases Professional Designer Benefits Receive Discounts on Products vs Retail Clients Retail Clients need Trade professionals to access exclusive products and special pricing 7
Interior Design Around the World Post WWII: Major Developments in American Interior Design Industry Spending on luxury home furnishings increased Trade-only business model never took effect outside USA Other markets: Retail Stores catering to Interior Designers Pricing Discounts + Custom Services 2008: American economic crisis / Housing Bubble Began shrinking Trade only industry Forced trade-only showrooms to explore new ways of growing sales Other factors contributing to this change are Technological, Generational, and Economic 8
Additional Reasons for Changing Industry in America Technological Creates design enthusiasts Free Design Material online Blogs + Design Magazines More Knowledgeable Shoppers Generational Less Touch and Feel Less Inclined to Travel More willing to buy online Prefer Accessibility Economic More Price Sensitive Use Internet to source/shop Browse Showrooms w/o designer Want to buy products directly 9
Evidence for Changing Industry: Retail Stores Smarter stores realize buying power of interior designers Consciously targeting trade members to-the-trade programs + showrooms in/around design centers (luxury furnishing) Showrooms in and out of design centers Trade-only and retail with designer discounts (luxury furnishing) Opening in design districts increased designer accessibility Ex. San Francisco (luxury furnishing) To-the-trade division offers trade pricing, project mgmt, customer service Ex. CS for repairs + returns to streamline orders 10
Changing Design Centers Changing model bc other industries pay higher per sq. ft. rent Examples of Design Centers with changing models Washing DC closed + looking for new building Dakota FL Philadelphia PA PDC LA CA ½ to ¾ empty + need tenants Houston TX 2/3 floors of 5 for design Chicago IL Merchandize Mart only 2 floors of many for design Even most active centers changing Boston MA wants to rent bottom floors to retail San Francisco CA wants to rent top floors to tech Many running marketing campaigns targeting retail consumers Promoting on-site buying services 11
Difficulties Trade Showroom Face in America With increasing competition from retail stores catering to the needs of interior designers, how do showrooms expand their customer base and sell directly to retail consumers without upsetting their interior designer partners? 12
How Stark Began Adapting to Changing Environment Saw Industry changes before 2008 Been Modifying strategy since Began paving future of industry 13
Stark Home The Evolution of our Retail Business: Stark Home What we ve done and what we learned 14
Warehouse Sales 1998: Warehouse Clearance Sales - overstock and closeouts 5 days in different markets every 2 years w/ up to 70% discounts Successful due to exclusive access to products Began sourcing/manufacturing products for sales 15
Design Center and Outlet 2004: Retail Outlets 1 st in Charlotte Trade-showroom entrance 2 distinct areas: trade showroom + retail outlet Retail component made showroom feasible Lunch and learn to explain received well Retail rug outlet 16
Problem with Design Center and Outlet Model Problem: Hurt our brand by putting our most high-end, exclusive products and services next to our discount products. 17
How we Addressed those Problems Stark Home Goal: Replicate exclusive nature of trade showrooms in retail space. Change the hybrid location name not enough Did not change look and feel inside confusing Inside implied discount not luxury 18
The Next Stark Home Locations Opened locations near trade showrooms More difficult than Charlotte Not seen as new resource Ex. Norwalk, CT 1 hour drive from NYC Designers felt end users could easily circumvent them Compensate designer with deserved commission Most successful retail location while creating most issues Continually evaluate how Norwalk SH impacts local trade business Take Away: Retails sales harder than trade sales bc of consumer product knowledge level 19
Discount Online Sales 2010: Stark began working with online flash-sale websites Successful 2-3 sales per year Began developing products specifically for Internet sales Learning experiences One listed a few trade-exclusive products for sale Ruined exclusive nature of products Learned better to keep overstock trade goods than sell retail Significant exposure created confusion in design community Is Stark still trade only or are they fully retail Challenged with educating community on new Stark Home model 20
OKL Day of Stark Example 21
Key Takeaway from Initial Stark Home Efforts Difference between Warehouse + Online Sales Warehouse = Local, Online = Global Key Takeaway The world is TRANSPARENT. To succeed, must be true to self and customers 22
What is Stark Home Now? Trade Area Retail Area Stark Home showrooms are now more of an experience than a store 23
What is Stark Home Now? Retail Area Trade Area Products: carpets, fabrics, many cash-and-carry area rugs for trade and retail clients Concept combines trade-only concept with retail component that offers non tradeexclusive products to retail clients Retail products displayed like in trade showroom implies luxury, not discount Display relevant company/product info around store to engage consumers at POS Separate trade area for all to browse but only designer to buy Not always locked behind a door anymore 24
How Stark Home Supports Trade Professionals? Philosophy: Designer are partners + value their support Taken measures to ensure integrity of Stark brand One facility to buy most luxurious textiles + well-priced products Retail component showrooms in more locations more convenient To-the-trade program: 1. Signature exclusive products remain exclusive to trade professionals 2. Additional discounts for trade consumers (Incl. online) 3. Special service like Custom Product Development and Home Consultation remain exclusively avail for designers Standard services like installation, binding, etc available retail Still face variety of challenges selling retail 25
Continuing Challenges No Cool / fashion forward luxury retail stores Lack sex appeal marketing dilemma Majority are local mom and pop shops No brand equity so leverage other brands to draw customer traction Stark is the only national luxury broadloom carpet brand Other national brands (Home Depot, etc) sell low-end products Uneducated retail shoppers decisions differently than trade professionals Buy based on feel and experience Stark has best products, prices, and story need to communicate via showrooms and product displays *How to protect designer if client tries to buy direct or with another designer Transparency of exclusive products and services is key to success Compensate designer for lost commission when circumvented Don t let other designers spec same products with same retail clients 26
Strategies to Attract Next Gen of Luxury-Minded Consumers Focused on making Stark a more visible and trusted brand 1. Sourcing and development of the most unique products Ashley Stark 2. Investing in most convenient technologies Tech re-launch 2014 3. Private labeling and exclusivity Stark = destination so don t leverage other brands Maintain exclusive prod nature Ex. Missoni 4. Customer Service Higher expectations from Stark Stark Cache 27
Stark s Holiday Mindset Interior design industry has seasonality Complete projects for Sumer vacations + Winter holidays Busiest: Fall (right when summer ends) and Spring (right before summer starts) Have begun running holiday promotions for retail Before Thanksgiving Less decorating in December 28
Stark Tips!! 1. Be TRANSPARENT Follow clear + concise policies religiously 2. Be True to Yourself + Your Brand It s OK to say NO sometimes! 3. Focus on your Business s Strengths Don t invest in areas that you don t have expertise 29
Conclusion + Q&A Evolving a luxury floor coverings brand from tradeonly business to include retail THANK YOU! Q&A Chad Stark [ VP, Operations and Technology ] Luxury Retail Summit: Holiday Focus 2013 30